What is Title Insurance?

Why is it Important?

The Penza Law Firm serves a necessary role for buyers and sellers to protect their most valuable asset - their real estate, by serving as the closing agent.

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What is Title Insurance and Why is it Important?

The title insurance process protects buyers and lenders from financial loss due to defects in a property’s title (legal ownership). It runs parallel to the broader real estate transaction, which involves multiple parties working together to transfer ownership.

Below is a clear breakdown of the process and the key actors involved.

1. What Is Title Insurance?

Title insurance protects against past issues affecting ownership, such as:

  • Unknown liens (unpaid taxes, contractor bills)

  • Errors in public records

  • Fraud or forgery

  • Undisclosed heirs

  • Boundary disputes

There are two main types:

  • Owner’s Policy – Protects the buyer

  • Lender’s Policy – Protects the mortgage lender (almost always required if financing)

Unlike other insurance, it protects against past events, not future risks.

2. The Title Insurance Process (Step-by-Step)

Step 1: Purchase Agreement Is Signed

After buyer and seller agree on terms, the contract is executed. The title company is typically selected at this stage.

Step 2: Escrow Is Opened

An escrow account is opened to hold:

  • Earnest money

  • Purchase funds

  • Documents

The escrow officer acts as a neutral third party.

Step 3: Title Search & Examination

The title company performs a title search, reviewing public records to verify:

  • Current legal owner

  • Outstanding liens or mortgages

  • Easements or restrictions

  • Judgments

  • Property tax status

They review county records, court filings, and recorded documents.

Step 4: Title Commitment Issued

The title company issues a Title Commitment (also called a Preliminary Title Report). It outlines:

  • Who will be insured

  • What is covered

  • Exceptions (items not covered)

  • Requirements to close (e.g., pay off seller’s mortgage)

This document must be reviewed carefully.

Step 5: Clearing Title Issues

If problems are found, they must be resolved before closing. This might include:

  • Paying off liens

  • Recording missing documents

  • Resolving legal disputes

  • Correcting recording errors

Step 6: Closing (Settlement)

At closing:

  • Documents are signed

  • Funds are disbursed

  • Deed is recorded with the county

  • Title insurance policies are issued

After recording, ownership officially transfers.

3. Key Actors in a Real Estate Transaction

Buyer

  • Makes offer

  • Conducts inspections

  • Secures financing

  • Reviews title commitment

  • Purchases owner’s title policy (usually)

Seller

  • Transfers clear title

  • Pays off existing liens

  • Signs deed and disclosures

Real Estate Agents / Brokers

  • Represent buyer and seller

  • Negotiate contract

  • Coordinate transaction milestones

Lender (If Financing)

  • Approves mortgage

  • Requires lender’s title insurance policy

  • Reviews appraisal and underwriting

Title Company

Often companies like Fidelity National Title, First American Title, or Old Republic Title.

They:

  • Conduct title search

  • Issue title commitment

  • Provide title insurance

  • Often handle escrow and closing

Escrow Officer / Closing Agent

  • Holds funds and documents

  • Ensures all contract conditions are met

  • Disburses money

  • Records deed and mortgage

(In some states, this role is handled by attorneys.)

Real Estate Attorney (Required in Some States)

  • Reviews contracts

  • Handles closings

  • Clears legal issues

  • Explains title exceptions

County Recorder / Clerk

  • Records deed and mortgage

  • Maintains public property records

4. What Title Insurance Covers (Examples)

Covered risks may include:

  • Forged deeds

  • Undisclosed heirs

  • Clerical recording mistakes

  • Invalid signatures

  • Unknown prior liens

It does NOT usually cover:

  • Zoning issues

  • Environmental problems

  • Matters created after closing

5. Why Title Insurance Matters

Without title insurance, a buyer could:

  • Lose the property

  • Be forced to pay old debts

  • Face costly litigation

Title insurance provides:

  • Legal defense

  • Financial protection

  • Peace of mind

And it’s a one-time premium paid at closing (not monthly).

6. How Money Flows at Closing (Simplified)

  1. Buyer sends funds to escrow

  2. Lender wires loan funds

  3. Escrow pays:

    • Seller

    • Existing mortgage payoff

    • Real estate commissions

    • Taxes and fees

  4. Deed and mortgage are recorded

  5. Title policy issued